West Texas Intermediate oil climbed near $100 a barrel on concern that protests in Egypt will threaten supplies and speculation that U.S. stockpiles shrank last week. Trading volume was the most in 16 months.
Crude rose to a 14-month high as the political showdown escalated in Egypt, which controls the Suez Canal, a key transit point for oil tankers. Hundreds of thousands massed to demand the departure of President Mohamed Mursi. Inventories may have dropped to the lowest level since May 31, according to a Bloomberg survey before government data tomorrow. Brent’s premium over WTI narrowed to the least in almost 30 months.
“There is some genuine concern with regard to vessel traffic to the Suez,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “WTI is acting as a proxy for these geopolitical concerns.”
WTI for August delivery gained $1.61, or 1.6 percent, to $99.60 a barrel on the New York Mercantile Exchange, the highest settlement since May 3, 2012. The volume of all futures traded was 85 percent above the 100-day average at 3:22 p.m. The futures have advanced 8.5 percent this year.
Brent for August delivery rose $1, or 1 percent, to settle at $104 a barrel on the London-based ICE Futures Europe exchange. Volume was 4.6 percent below the 100-day average. The European benchmark’s premium to WTI narrowed to $4.40 a barrel, the smallest gap since Jan. 4, 2011.
WTI was little changed after the American Petroleum Institute reported that U.S. crude inventories dropped 9.36 million barrels to 382.6 million last week. The August contract rose 1.6 percent to $99.55 a barrel at 4:34 p.m. It traded at $99.47 before the report was released at 4:30 p.m.
In Egypt, Mursi’s Islamist supporters vowed to stand firm against what they saw as a threat of a military coup. The armed forces pledged yesterday to impose their own plan if Mursi didn’t end Egypt’s political crisis within 48 hours.
The U.S. embassy in Cairo will be closed tomorrow. The embassy warns U.S. citizens to avoid areas where demonstrations may occur.
“Because of the Suez Canal, the escalating unrest in Egypt does increase supply risks,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.
Egypt controls the canal and the Suez-Mediterranean Pipeline, through which a combined 2.24 million barrels a day moved to markets in Europe and North America in 2011, according to the Energy Information Administration.
U.S. crude stockpiles fell 2.25 million barrels, or 0.6 percent, to 391.9 million in the week ended June 28, the Bloomberg survey showed. Refineries probably increased operating rates to the highest level in more than 10 months as motor fuel production climbed before the U.S. Independence Day holiday on July 4, the survey showed.
“There is still some room for some bullish supply numbers,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “You really want to sell oil ahead of inventory data that may show some sharp drops? There is a lot of price chasing going on.”
Electronic trading volume on the Nymex exceeded 987,955 contracts as of 4:35 p.m., the most since Feb. 7, 2012. It totaled 688,900 contracts yesterday, 9.5 percent higher than three-month average. Open interest was 1.79 million contracts.
The September contract’s premium to October widened to $1.04 from yesterday’s 86 cents.
“The spread blew out,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “It’s a reflection of the expectation of supplies tightening.”
Motor-fuel demand is highest from the last weekend in May to the Labor Day weekend in early September, the prime vacation season in the U.S.
“It’s the peak demand season,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago. “The path of least resistance is higher.”
The U.S. accounted for 21 percent of global oil demand last year, according to the International Energy Agency’s monthly oil market report published on June 12.
“We are looking at a decline in inventories,” said Gordy Elliott, a risk-management specialist at Intl FC Stone LLC in St. Louis Park, Minnesota. “Brent is having more challenges to find a reason to rally. You’ll probably see WTI trading even at a premium to Brent.”
The drop in the gap between Brent, a gauge for more than half the world’s oil, and WTI shows how improved pipeline networks and the use of rail links have helped to unlock a glut at America’s oil-storage hub at Cushing, Oklahoma, the delivery point for WTI futures.
“You have more pipeline capacity than you had before and that helped draw those prices together,” Evans said.
Implied volatility for at-the-money WTI options expiring in August was 19.8 percent, up from 19.4 percent yesterday, data compiled by Bloomberg showed.